US, China mini-deal offers 'breathing space' for economy

A truce in the US-China trade war offers Xi Jinping breathing space as he faces a slowing economy and political trouble in Hong Kong, but experts warn 2020 will be another tough year for the Chinese president.

The pared-down "phase one" deal announced Friday includes a reduction in US tariffs on China, in exchange for an increase in Chinese purchases of US goods and better protections for intellectual property.

But tussles over the most controversial Chinese trade practices -- including steep state subsidies -- have been left to future talks.

The trade war launched nearly two years ago by President Donald Trump isn't over, analysts say, as there's always the risk of Beijing not upholding its end of the bargain and the mercurial US leader throwing more tariff bombs.

The mini-deal is a "delay tactic to buy the Chinese Communist Party breathing space and allow it to stay in the game against overwhelming odds," said Larry Ong, senior analyst with risk consultancy SinoInsider. Growth of the Chinese economy slowed to six percent in the third quarter -- its most sluggish rate in nearly three decades -- as demand for exports cooled and Chinese consumers tightened their belts.

In November exports fell 1.1 percent from a year earlier, the fourth straight fall, and exports to the US nosedived 23 percent as the trade war disrupted supply chains and left investors on edge.

Trump has cancelled a new round of tariffs that had been due to kick in on Sunday and would have affected smartphones, toys and laptops among other goods, while Beijing also called off levies planned in retaliation. In another major concession, Washington will also slash in half the 15-percent tariffs imposed on $120 billion in Chinese goods, like clothing, that were imposed on September 1.

However, this "unexpected" tariff rollback will only have a "marginal" impact on China's economy, said Lu Ting of Nomura bank. "The worst is not yet over and 2020 looks set to be yet another tough year."

On the political front, Washington's decision to back the pro-democracy movement in Hong Kong and to criticise China's mass detention of mostly Muslim minorities has cast a shadow over trade negotiations.

Xi has faced six months of increasingly violent demonstrations in Hong Kong, while on the other side of the world Trump is facing a congressional vote on impeachment for abuse of office next week.

And with Trump's 2020 reelection campaign gathering pace, he needs to show voters that his habit of starting bruising trade wars is bearing fruit.

Barry Naughton, an expert on China's economy at the University of California in San Diego, said the mini-deal -- which caused US stocks to whipsaw -- may have been announced too soon.